Coffee prices have risen due to drought conditions in Brazil and a stronger Brazilian real. Reports show that Minas Gerais received significantly below average rainfall, intensifying supply fears. Brazil’s coffee exports also declined, while predictions indicate ongoing production decreases. Conversely, reports suggest that Vietnam’s robusta coffee production is expected to drop, further supporting coffee prices despite concerns about global surpluses and increased inventories.
Coffee prices have experienced moderate increases due to adverse weather conditions in Brazil and the strengthening of the Brazilian real. As of Wednesday, May arabica coffee rose by 1.89%, while robusta coffee increased by 1.06%. Reports indicate that Brazil’s largest arabica coffee-producing region, Minas Gerais, received only 71% of its historical average rainfall, which raises concerns over potential supply shortages.
Additionally, the Brazilian real has rallied to a 4.5-month high against the dollar, discouraging local producers from selling coffee exports at lower prices. However, gains in robusta coffee were somewhat mitigated by increased inventory levels, which reached a one-week high of 4,336 lots. In contrast, arabica coffee inventories fell to a 3.5-week low of 782,648 bags.
Ongoing supply concerns bolster coffee prices. Recent data indicated a 12% year-on-year decline in Brazil’s green coffee exports, amounting to 3 million bags in February. The Brazilian government crop forecasting agency, Conab, projects a 4.4% year-on-year decrease in the 2025/26 coffee crop, marking a three-year low.
Conversely, Marex Solutions indicated a potential widening of the global coffee surplus in the 2025/26 season, anticipating a surplus of 1.2 million bags, an increase from the previous surplus. Moreover, robusta coffee prices are indirectly affected by increased exports from Vietnam, which saw a 6.6% rise in February.
Brazil continues to face the driest weather conditions recorded since 1981, affecting coffee crop development and future yields. The prolonged drought impacts the flowering stage crucial for coffee tree development, while Colombia is slowly recovering from similar conditions.
Drought conditions have also led to reduced robusta production in Vietnam, with projections indicating a drop to 1.472 million metric tons— the lowest in four years. The USDA also forecasts a slight decrease in Vietnam’s robusta production for the 2024/25 marketing year.
Although Brazil may see an increase in coffee exports, reports show December’s global coffee exports declined by 12.4% year-on-year. The USDA predicts a mixed outlook for coffee prices, forecasting a 4% increase in global coffee production for 2024/25, while also seeing lower ending stocks, signaling tighter supply.
Volcafe has adjusted its 2025/26 production estimate for Brazilian arabica coffee, cutting it to 34.4 million bags due to ongoing drought conditions. They also predict a growing arabica coffee deficit for the upcoming season, marking concerns about the global supply shortage.
The views conveyed in this article reflect the author’s opinions and should not be taken as definitive investment advice, as Rich Asplund has disclosed no relevant positions in the mentioned securities.
In summary, coffee prices are influenced by insufficient rainfall and the appreciation of the Brazilian real, raising concerns about supply shortages. The forecasts from Brazil’s government and other organizations indicate potential declines in production, particularly for arabica coffee. The global coffee market is characterized by mixed signals, including rising export levels and increasing inventories, illustrating the complexities of coffee pricing dynamics. Continued attention to weather conditions and crop reports will be essential for stakeholders in the coffee industry.
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